Dealing with your bank is never as straight forward as you think.
Many business owners underestimate the pivotal role played by their bank. Sometimes it’s deliberately ignored. But often it’s an inadvertent mistake. Unfortunately, the importance of banking relationships is often learnt the hard way. There are seven mistakes many business owners make when dealing with their bank. Avoiding these mistakes can enhance your chance of surviving, and thriving.
1. Putting Off Addressing Problems
When the pressure comes on and things are looking tight, you might feel unsure what to say to your bank, if anything. Whatever you’re worried about the bank doing, it will get much worse if you keep them in the dark. If you think you’re heading into trouble, get good advice as fast as possible. Find out exactly what’s happened and develop a credible plan to fix it. Present your plan to the bank as soon as possible so that they know what’s happening.
2. Assuming The Bank Will Show Loyalty
So you’ve got a great track record and shown loyalty to your bank. This doesn’t mean the bank will show any loyalty to you. The bank doesn’t necessarily share your views. This mistake is often made by businesses that have been with one bank since the beginning.
3. Paying Too Much Attention To Interest Rates
It’s easy for business owners to feel the better the interest rate, the better the deal. Other factors can be equally (if not more) important than price. This is particularly so if you encounter tough times. It’s difficult to put a value on having lee-way or spare capacity in your limits and conditions. But having a buffer can protect you from defaulting with your bank. This could be worth more than any savings you might make by going for the rock bottom price.
4. Not Realising Your Banking Relationship Can Be A Risk
No doubt you worry about risks like losing a major client, or if one goes bust. Maybe the loss of a key employee or the threat of new competitors. But what about the risk of your bank not being there when you need them? For many businesses the banking relationship is a risk that rates as high as any other. So you need to manage it accordingly.
5. Ignoring The Small Print
Loan documents are meant to be written in plain English. Often that doesn’t seem the case. Borrowers and guarantors might need to provide a solicitors statement. When there are non-working partners in the business this is often the case. Even so, disputes still happen. It can relate to security, loan covenants or fees. If you’ve got doubt about what you’re signing, get some independent expert advice. Prevention is always better than cure when it comes to bank documentation.
6. Promising A Lot And Not Delivering
You’re no doubt very passionate about your business. This can sometimes mean you tend to be more optimistic about its future outlook. But it doesn’t pay to be too optimistic when you give your forecast to the bank. The bank will expect you to meet that forecast. Any failure to do so will make them nervous. That won’t help your cause at all. It’s far better to promise less, and then deliver more.
7. Relying On One Bank
Dealing with the bank can be frustrating and time consuming. What makes it more so is the frequent change in managers – that’s if you’ve been lucky enough to have one to start with. Because of this it’s easy to feel more than one bank is too much trouble. But a second banking relationship, even for a simple matter, could be useful. It could provide an opening for when you need it in the future.
Read our free report: Why It’s Worth Renegotiating With Your Bank